A blow to Russia: how electric cars put pressure on the oil market

Will electric cars be able to crash the oil industry?

Tesla Model X electric crossovers near the plant for the production of batteries for electric vehicles (Tesla Gigafactory) in Nevada, 2016

The states, whose budget is based on oil sales, are threatened by a new danger: in the next 20 years, the share of electric vehicles in the world can grow tenfold. Countries, one after another, declare their intention to ban the sale of cars with gasoline and diesel engines, which will affect the consumption of hydrocarbon fuel.

Trend for electric cars

Diesel and gasoline engines go out of fashion. European and Asian countries have taken the trend for high-tech and environmentally friendly transport.

Readiness to fully switch to cars with zero or low emissions was announced in February 2017 by the Government of Norway. Currently, the share of environmentally friendly cars in the country, according to open sources, does not exceed 4.5%.

Electric cars in Norway are already exempted from many taxes and restrictions that apply to cars with internal combustion engines (ICE). They are also provided with free charging and the right to use the public transport lanes prohibited for all other cars.

The country's leadership intends to take a number of measures in order to make the acquisition of cars with diesel and gasoline engines unprofitable by 2025.

The authorities of India also want to refuse to sell gasoline and diesel cars by 2030. By 2040, the Minister of Ecology of France, Nicolas Hulot, promised to get rid of them, adding that this step would be a "real revolution."

The UK government went even further, announcing that by 2040, not only cars with internal combustion engines would be banned for sale in the country, but also cars with hybrid engines. You can buy only electric cars.

In Germany, where the “electric boom” could threaten 600 thousand jobs in the traditional automotive industry, they are not in a hurry to set a deadline for themselves without giving up the general trend. In August, German Chancellor Angela Merkel announced that she shared this approach.

China may join the general trend in the near future: in September, the relevant ministry of China announced that it was considering introducing a ban on the production and sale of internal combustion engines in the country.

In 2016, over 330 thousand "new ecological cars" were sold in China, including electric cars and hybrid cars, which is 62% more than in 2015. By the end of September 2017, sales growth rates have already reached 90%, says Dmitry Plekhanov, a leading specialist at the Institute of Integrated Strategic Studies (ICSI).

The development of the electric vehicle market in the country largely depends on the policy of its leadership, the expert emphasizes. In China, for example, this direction is subsidized, the creation of a joint venture for the production of environmentally friendly cars is supported, and electric car buyers receive preferences.

According to the latest forecast of the International Energy Agency (IEA), the global fleet of electric vehicles will grow to 150 million cars by 2040.

BP expects growth to 100 million cars by 2035. OPEC predicts that by 2040 there will be up to 226 million electric vehicles in the world.

According to the most optimistic forecasts, the share of electric cars in the world park can be up to 40% by 2040, according to ICSI. Currently, this indicator is at the level of 0.2%.

Last week, the executive director of the British consulting company Longview Economics, Chris Watling, was aired on CNBC television channel that oil prices could fall to $ 10 a barrel in 6-8 years due to the massive switch to electric cars.

“Oil has not always played a leading role in the global economy. 120 years ago, the world was not dependent on it, ”Watling recalled.

Download less, generate more

This trend will certainly have an impact on the energy markets, said Ekaterina Grushevenko, an expert at the Energy Center of the Skolkovo Business School, said.

The growth of electric cars will naturally increase the demand for power generation and energy carriers (as it is being greened, this will primarily concern gas and renewable sources), and will also have a negative impact on the demand for oil, the expert notes.

However, it is difficult to estimate how much oil will displace eco-friendly transport from the market. In 2016, the IEA in the New Policies scenario suggested that it could be about 1.3 million barrels per day by 2040. Bloomberg New Energy Finance estimates this figure at 8.5 million barrels per day.

According to current projections, as a result of the mass distribution of electric vehicles by 2040, oil consumption may decrease by a maximum of 10 million barrels per day,noted in the ICSI study.

In 2016, according to OPEC, the amount of oil consumption in the world amounted to 95.4 million barrels per day.

The trend to reduce the consumption of different types of motor fuel in Europe appeared 10 years ago, long before the manifestation of the current electromotive hysteria, said VYGON Consulting senior consultant Alexander Bylkin. The reason for this was the saturation of the population with cars and the reduction of fuel consumption by cars with ICE, the expert notes.

At present, the main negative impact on fuel consumption - and therefore on oil production - is not the increase in sales of electric vehicles, but, above all, the increase in fuel efficiency in new cars, Plekhanov agrees.

Since 1980, fuel efficiency has increased by 50%, that is, the average car can travel 50% more ways, using the same amount of fuel.

The effect of the increase in transport efficiency in reducing the consumption of motor fuels in Europe is estimated at 2.8 million barrels per day over the past 10 years (with a total consumption of 12.2 million barrels per day).The contribution of electric vehicles to reducing the demand for petroleum products in transport does not exceed 0.3 million barrels per day.

It was precisely the fuel consumption reduction factor that was and will be the main driver for reducing the consumption of motor fuels, which constitute 60% of the global demand for oil, the expert is sure.

The continuation of current trends with a minimum share of sales of electric vehicles will lead to stagnation in oil demand by 2023-2025, which over the past ten years can already be seen in almost all developed countries, he adds.

It’s too early to bury oil

Oil companies and specialized international organizations make different forecasts about the peak of oil consumption in the global economy. In World Energy Outlook last year's forecast (updated annually in November), the IEA stresses that “the era of fossil fuels is far from over.”

Global oil consumption will continue to increase until 2040, as it is difficult for it to find an alternative in the field of road freight, aviation and petrochemistry, the agency notes.

OPEC is waiting for a peak in 2029, after which demand will begin to decline amid a reduction in greenhouse gas emissions by the parties to the Paris Agreement.

Shell Corporation suggests that maximum oil consumption can be fixed in the early 2030s.

“I can assure you that the rumors about the“ death ”of oil are greatly exaggerated. Oil will remain the basis of world fuel energy and for the future 20-30 years ahead, ”believes the head of Rosneft, Igor Sechin.

The growth of oil consumption in the world economy will be promoted by the continuation of economic growth in Asian countries, Plekhanov argues.

In addition, the decline in demand for motor fuel in passenger transport can be offset by growth in sea and air transport, in the sector of commercial vehicles and in the petrochemical complex, where environmental requirements are not as stringent, he notes.

Alexander Bylkin, a senior consultant at VYGON Consulting, also believes that it’s premature to talk about the decline of the oil era. “Even with high sales of high-tech cars, in the general park there will still be a lot of the usual transport with the engine,” the expert notes.

The forecast that liquid fuel vehicles will be completely replaced by electric vehicles by 2040 remains controversial, draws attention to the analyst at the Energy Center of the Skolkovo Business School Alexander Sobko.

But if this really happens, the demand for electricity in the EU will increase by 30-40% of the current generation volumes, which corresponds to an additional at least 200 billion cubic meters of gas as fuel, he explains.

All these statements about the refusal of the ICE do not have the status of a law in any of the states, so it is hardly to be expected that in all countries, especially in India, where there is already a low electricity supply to the population, this transition will be 100% realized attention Ekaterina Grushevenko.

Most analysts and experts agree that in the long term the next 6-8 years the mass distribution of electric vehicles is unlikely to affect the cost of oil.

There are more important factors affecting the dynamics of prices for raw materials, says Sergey Kozlovsky, head of analytical department at Grand Capital. Mass abandonment of oil as a raw material is possible in the perspective of one hundred years, and then with large assumptions and delays in the decades between countries.

Even the possible ban of many countries on internal combustion engines by 2050 will not collapse the oil quotes, the analyst believes.